RBS Gets Ready To Divest Remaining Stake In WorldPay

November 27th, 2013 by Trefis Team
RBS: Royal Bank of Scotland Group logo
RBS
Royal Bank of Scotland Group

The Royal Bank of Scotland Group (NYSE:RBS) moved one step closer towards fulfilling the requirements that were laid down by the European Commission (EC) as a part of its bailout in 2009 by reaching an agreement with a consortium led by Advent International and Bain Capital to sell off its remaining stake in WorldPay. ((Disposal of remaining stake in WorldPay, RBS Investor News, Nov 27 2013)) RBS holds a near-20% stake in WorldPay, and the deal will add £160 million (~$260 million) in profits to the bank’s performance figures for the last quarter of the year.

This is a welcome piece of news from the global banking group, which has drawn a lot of fire since a report released earlier this week alleged that RBS was driving small businesses towards bankruptcy only to absorb their assets and strengthen its own balance sheet. [1] The seriousness of the alleged offense is compounded by the weak economic conditions in U.K., due to which the country’s regulators may start a criminal investigation into the bank’s operations. [2]

We maintain a $11 price estimate for RBS’s stock, which is slightly ahead of the current market price.

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See our full analysis for RBS’s stock

In return for its £45.5 billion bailout in the aftermath of the global economic downturn of 2008, the European Commission laid down a list of restrictions as well as compulsory divestments that RBS had to undertake over the following years. ((Darling hails Lloyds and RBS move, BBC News, Nov 3 2009)) The requirements included the disposal of the group’s Global Merchant Services (WorldPay), RBS Sempra Commodities and a 316-branch network by the end of 2013, and a complete exit from the insurance business by the end of 2014. [3] The restrictions imposed also forced the group to cut down on investment banking operations, and being banned from restarting its non-core activities until the end of 2014. ((Statement on disposal of UK Branch-based Business, RBS Press Releases, Oct 15 2012))

RBS has stuck to the restrictions, and its progress in the divestments is as follows:

  • RBS Sempra Commodities: Exit finalized in 2011
  • Global Merchant Services: Spun-off as WorldPay, with the last remaining 20% stake to be sold off by the end of the year
  • Branch sale: Dubbed ‘Project Rainbow,’ was finalized this September and will be completed by the end of 2015 (see RBS Finally Closes Project Rainbow Deal)
  • RBS Insurance: Spun-off as the Direct Line Insurance Group last year. RBS still holds a 28.5% stake which will be disposed of by the end of 2014

We include RBS’s for-sale business units in our analysis of the bank as a part of the “Non-Core & Central Items” division. The chart below shows our forecast for revenues from this division, and assumes that the divestments are completed as planned.

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Notes:
  1. RBS accused of pushing small businesses to the edge to boost profits, The Guardian, Nov 25 2013 [↩]
  2. RBS faces possible criminal probe, Financial Times, Nov 27 2013 [↩]
  3. Statement on disposal of UK Branch-based Business, RBS Press Releases, Oct 15 2012 [↩]